Technically Speaking, October 2021

In this month’s President’s Letter, I am going to address the professional work requirement for membership in the CMT Association.

Per the Bylaws, Article 2.01, Section (C), items (i) and (ii), an applicant for Membership must be employed as an investment professional as of the date of application and have at least three years of approved professional work experience. Furthermore, Article 2.02, Section (A), item (i) states that to be granted the CMT Charter, one must be a Member.

While the CMT Association has grown and evolved over the years, our mission – our “reason for being” – has not changed. Definitely, without question, we exist to promote the use of Technical Analysis. That is why the Association was originally formed and is the key reason we have remained relevant all these years.

But, our mission is not only to promote the use of Technical Analysis. There are two additional components, or facets, to our mission that are extremely important to understanding why we exist and what we aim to accomplish as a group.

1. We aim to attract and retain a membership of professionals devoting their efforts to using and expanding the field of technical analysis and sharing their body of knowledge with their fellow members.
2. We will establish, maintain, and encourage the highest standards of professional competence and ethics among technical analysts.

These three items – promote TA, have professional members, and maintain ethical standards – compose our mission statement. Importantly, the mission statement not only explains who we are and what we are about, but it also does a good job of defining what we do not aim to be.

Because computers have made it easy to perform Technical Analysis by instantly plotting indicators on the screen, Technical Analysis has become an extremely popular tool among individual investors, or “retail” investors, over the past 30 years or so. These are people who do not have careers in finance and typically manage their own pools of capital to augment other sources of income.

The CMT Association does not aim to be a source of educational content and networking opportunities for non-professional investors. Per our mission statement, we intentionally focus on serving financial professionals to help them successfully use Technical Analysis in their careers.

That being said, many people who are just learning about Technical Analysis for the first time may be thinking about a career in Finance because of their interest in TA and trading. Often, we are asked by CMT Program candidates how they may qualify for membership if they do not have the required minimum of three years of work experience in Finance. As they sometimes explain, the very reason they are pursuing the designation is to land a decent job in Finance. So, how can they attain job experience if they need the CMT designation to do so? It appears to be a similar conundrum as credit card companies requiring you to have a good credit history before they issue you a card, but without a card you cannot obtain a good credit history.

Like a post-graduate degree from a university (e.g., an MBA), a professional designation can certainly elevate one’s attractiveness to employers. Keeping in mind the well-defined mission of the CMT Association, our requirement that members have a minimum amount of professional financial work experience is necessary and we must be uncompromising in its application. The CMT designation proves to employers that you possess a thorough knowledge of Technical Analysis concepts and have a competent ability to apply them. But, it cannot be the only requirement of membership in the Association.

The unfortunate truth for CMT candidates who have yet to get a job in Finance is that you will need to wait to apply for membership until you can satisfy the work requirement. But remember, this does not require you have a job in trading or investing per se. Your work experience just has to be related to the field of Finance in some capacity. Alternatively, Affiliate Member status gets you access to the CMT Association’s educational programming, ethics awareness, and helps you build your network of TA professionals, but does not require work experience. For CMT Program candidates, Affiliate membership includes reduced pricing on CMT Exam registration.

I hope this helps clarify what might appear to be a confusing requirement for membership in the CMT Association.

Now, with that topic behind us, I want to recognize the contributions of the previous Editor of Technically Speaking, Michael Kahn. Mike is a Senior Market Analyst at the famed Lowry Research Corporation in North Palm Beach, Florida, which was previously owned and run by Paul Desmond, Past President of the CMT Association, a founder of AAPTA, and winner of the Charles H. Dow Award.

In case you did not know, Mike wrote for Barron’s and MarketWatch for many years and was (is) one of the shining stars of the CMT Association. I personally would use Mike’s articles to annoy coworkers about the usefulness of Technical Analysis, which generally went over very well. So, I sort of feel like we all owe Mike for being one of the faces of Technical Analysis out there proving to the world why we do this stuff. On top of that, he did a fantastic job producing our newsletter over the years.

I wish you the best of luck in your future endeavors, Mike. Thank you!

Within the Technical Analysis (TA) world, new strategies from perceptive and curious practitioners routinely are being discovered, discussed and implemented. The space will continue to evolve, and we’ll all benefit from these advancements.

That being said, we shouldn’t forget about the foundation upon which the TA craft was built – price analysis, specifically the use of classical chart patterns: head & shoulders, cup and handles, flags, pennants, breakouts, breakdowns, measured moves, etc.

Indeed, the trading environment is vastly different now compared to when Robert Edwards & John Magee first published the famed “Technical Analysis of Stock Trends” in 1948.

But there’s a reason why passages from this classic are still frequently referenced over 70 years later:  human nature doesn’t change. And human nature has been, is, and will continue to be, driven by emotion.  Within the stock market, this is reflected in classical chart patterns.

Let’s look at the current market as of late September, 2021.

Name one aspect that’s worked well this year. If you said buying the S&P 500 at the 50-Day Moving Average, you’d be undoubtedly correct.  Why? In up trending markets, buying the dip works.

That’s only part of the story, though. Since the spring of 2020, the uptrend has been characterized by successful bullish patterns, as well as failing bearish patterns.

That may sound obvious, but without both phenomena taking place, the uptrend would cease.

Here are two bullish pattern breakouts that have achieved upside targets in 2021.

Arguably, it’s been even more important to see potential bearish formations fail. Is it any coincidence that various bearish set ups have taken place atop the infamous 50-Day Moving Average? Some of them witnessed temporary downside breaks; others didn’t even get that far.

Until recently…

Again, recently breaking below the 50-Day Moving Average has gotten a lot of headlines, but it’s even more telling that a downside pattern target has been achieved after months of that NOT happening.

While this may not predict a big correction, it tells us that the previous one-way market has needed to regroup … as it waits for additional patterns to form.

The next step for the SPX? Avoid this even bigger potential top … And by the time of this publication, we’ll know how it resolved.

The financial world will remember 2021 for many things: continued Fed leniency, the meme stock craze, NFTs, the Metaverse, inflation, Energy stock prowess and sharp rotation, among other market moving themes.

The reaction to those and various other headlines has been just as important, the resultant patterns of which has told us all we need to know about the market’s risk appetite.

We have a resolution in one of the most important charts in the world. The US 10-year yield has reclaimed 1.40% and then some.

So, what does a rising rate environment mean for investors?

We know we want to stay away from bonds, unless we’re shorting them. But how do we want to be positioned in the stock market if yields are breaking out?

It’s simple: Some stocks do better with rising/higher rates, while others thrive amid low growth and low yields. If this is the beginning of a fresh move higher for yields, we want to focus on stocks likely to benefit from that shift.

It’s all about global growth, reflation, and the reopening trade. Cyclical and value stocks should outperform.

Growth and tech stocks – any long-duration assets, for that matter – could come under pressure, as they’re less attractive than economically sensitive areas.

That’s what we’ve witnessed in recent weeks. The stock market is confirming the move in yields. Stocks are acting the way we’d expect in such an environment.

How can we illustrate this point?

Fortunately, there’s an ETF for everything these days, even one that invests specifically in the stocks we’re discussing.

This is the Proshares Equities For Rising Rates ETF $EQRR:

It’s working on a big base breakout, as price challenges those key 2018 highs.

Seeing this chart resolve higher from this multi-year base would provide strong confirmation for the new highs in yields. It would also represent a major development for the stock market and risk appetite more broadly.

The thing is, EQRR is an illiquid fund not suited to express a thesis on rising rates. But there are other ways to do it!

When we looked under EQRR’s hood, we learned that over 50% of its holdings are from the Financial and Energy sectors.

It shows when you contrast EQRR with this equal weight custom index of the Energy and Financial sector ETFs, $RYE and $RYF:

The two look identical.

So, if you’re looking to bet on higher rates, Energy and Financials are excellent places to start.

Now take a look at this overlay chart of the US 10-year with EQRR relative to the S&P 500:

Again, they look almost identical.

When rates move higher, these stocks typically outperform. And, when the 10-year is falling, these stocks tend to lag the broader market.

Sometimes EQRR/SPY has given a leading or lagging signal for rates. But the ratio is best applied as a coincident indicator. We just want to see one confirm the other. And that’s what’s happening right now.

We’re also getting confirmation from the bond market, with global yields trending higher since the summer.

In the US, in addition to the 10-year, yields are breaking higher all along the curve. Even the 30-year has made a decisive move back above 1.90%.

We like to look at the 5-year to confirm what we’re seeing from the 10-year. It sure looks as though they’re both breaking higher:

The 5-year is breaking out of a year-to-date base to its highest level since February 2020.

Meanwhile, the 10-year is resolving higher from a tight coil and ripping back above our risk level at 1.40%. It’s also trading at its highest level since February 2020.

Here’s a zoomed-out view to better illustrate this important zone:

Look at all the price memory at those 2012, 2016, and 2019 lows around 1.40%. Check out the strong follow-through today, as the 10-year is currently trading above 1.45% as I write.

It sure looks like a valid breakout to me.

And we’re already seeing some strong rotation into these higher rate beneficiaries. Here’s a look at a daily relative rotation graph:

Energy, in the upper right quadrant, is the clear leader right now over shorter timeframes.

Financials also appear to be hooking up and to the right toward the leading quadrant, as are Industrials and Transports.

Growth sectors like Tech and Communications are headed toward the lagging quadrant–these groups are likely to underperform for the foreseeable future. So are Utilities and other defensive or “bond-proxy” sectors like Real Estate and Staples.

One last thing to note is the recent relative strength from High Beta. That’s another group, along with value stocks in general, that we’d expect to do well with rates moving higher.

You could argue that yields are only one data point. But they’re a pivotal one.

Rising rates could have positive implications for risk assets, so we can’t overstate how bullish this decisive breakout in the 10-year yield is.

DXY trend: Looking at the trend of the US Dollar index (DXY) is very important to gauge the movement of Bullions and Base Metals, as these have an inverse relationship to this trend. While Bullions still account for other Geopolitical situations while factoring in the prices, Base Metals have a distinctly inverse relationship with the US Dollar index.

US Federal Bank’s Policy:  In the last one and a half years, we saw the Dollar’s demise on the back of the US Federal Bank’s monetary policy. Weaker Dollar boosted base metal prices. In the wake of that, the US Dollar index seems to have taken greater support close to the level of 89.00 and has bounced back towards 93.73. In the September meeting of the US Fed, we got an indication that we could see tapering as well as a rise in interest rates on the back of economic recovery going forward. Thus, it becomes crucial to look at the DXY structure.

Elliott wave: The monthly chart of DXY marks the Elliott wave pattern. In the period from 2011 to 2017, prices rose from the lows near 74.00 to 103.85 levels. This price action exhibited impulsive behavior as marked by (1-2-3-4-5). This rise has completed the intermediate wave (A) of the Zigzag correction pattern and post that intermediate wave (B) is ongoing which is probably forming a ‘Triangle Pattern’ as indicated by the grey lines.  This wave (B) has taken support close to the 50% retracement level of the prior rise.

US Dollar Index (DXY) Monthly chart:

Triangle Pattern: The structure of intermediate wave (B) suggests minor wave C has completed and wave D has started which is likely to move towards the black trendline resistance.

Bollinger Bands: DXY is on the verge of crossing above the main line (moving average) of the Bollinger Bands for the first time in 17 months. This indirectly suggests that prices are about to break above their average of the last 20 months.

MACD Positive crossover: We have marked the previous occasions when buy signals were generated in MACD. Most of the times in the past this signal worked out brilliantly, and now once again it has provided a bullish signal which supports our outlook.

Now let’s dig a little deeper and look into the weekly chart which shows the formation of the “Double Bottom Pattern”. There is more validity of this pattern as it has formed after a sustainable downtrend. Bollinger Bands have also started to tilt on the upside and prices have started to sustain above the middle band, which is a bullish sign. Now, any monthly close above 94.00 will lead to a breakout from this pattern and suggest a target towards 97.50 level.

US Dollar Index (DXY) Weekly chart:

In short, considering the shift in the US Federal bank’s monetary policy as well as the overall structure of DXY, the US Dollar index (DXY) has formed crucial lows at 89.00 levels and a break above 94.00 will provide further confirmation of the bullish scenario for the move towards 97.50 levels at least. Overall wave D target can be expected in the range of 101.50 -102.00 levels which is finally not a good sign for Base Metals as well as Bullions to some extent. This scenario will remain valid as long as the crucial support of 89.00 is protected.

I was asked to write an article on how we use charts in our investment selection process from the perspective of a hedge fund manager. The answer is, a majority of analysis comprises of fundamental analysis while technical barometers are used to assist with entry and exit timing. So here is how we use Technicals to identify our levels.

PHASE 1 – The Market:

On a technical basis, we start “top down” – with the general indices – to get a sense of whether it makes sense to be aggressively adding risk or lightening up. Since no single indicator or oscillator is foolproof, we try to look at a few dozen to see if they are pointing to the same probabilities – or diverging in their readings.

While many technical analysts prefer to buy when there is high relative strength and “blue skies” on “breakouts,” we prefer to buy high-quality durable franchises when they are on sale. We are looking for periods when selling is at or near exhaustion versus buying when everyone is already clamoring for the stock or sector. While this may require slightly more patience – as building bottoms can take time – if you have done proper fundamental analysis and know what you own (as well as understand the time value of money), buying quality (when trading below intrinsic value) and selling when the masses are exuberant for the company (after it has exceeded intrinsic value), is a process that has created material wealth for practitioners over many generations and through many cycles. Here are a handful of indicators we look at to get a feel for the general market:

PHASE 2 – Sector Rotation:

Once we have a feel for the general market climate, we drill down to see which sectors are on sale.  When we have determined what is at/near selling exhaustion – we do deep-dive fundamental analysis to determine WHY. Sometimes stocks and sectors are cheap for a reason. We look to identify catalysts that will turn the tide in a reasonable amount of time. We use sector barometers like percent of stocks in a sector above their 20 and 50 day moving averages, Bullish Percent (by sector), and ratio charts of the sector relative to the general indices. Here are some barometers that we go through for each sector to identify potential opportunities:

PHASE 3 – Stock Selection:

After we have determined the climate of the general indices and identified sector(s) that may be offering the greatest opportunity, we run a simple “oversold” (relative strength) screen to see a few dozen large cap, high quality companies, in the targeted sector. Then the real work begins to find those franchises that are cheap for a reason (to avoid), or cheap due to sector rotation or some short-term bad news/exogenous event that has caused it to be misappraised in the short term:

Imagine purposely choosing to own precious metals over the past year?

This is where ego plays a huge role. Technical Analysis is not just the study of the behavior of the market, but also market participants. And that includes looking inside of yourself.

Are you letting your ego get in the way of making money?

All investors are susceptible to this flaw, but only the weakest-minded allow it to stand in the way of profits.

When you look at this chart of precious metals relative to stocks, no one in their right mind will argue that these are uptrends. Yet there are people reading this who have taken the ride all the way down.

It’s funny, the usual comeback from these stubborn gold bugs is to zoom out.

Of course, whenever a trade goes against them, it turns into “an investment.” They usually have some fairytale about how much money they made in Gold in some random year or decade that has absolutely nothing to do with the present.

The trends here are down.

You can also see it in Gold Miners on an absolute basis breaking down to new 52-week lows:

If Gold Miners $GDX are below the crucial level of 31, there is no reason to own them.

A long position only makes sense if it’s above the support level of 31.

As far as Gold goes, sure this looks like a potentially bullish basing pattern. But without a definitive breakout, this is really just a hot mess of a chart:

The bull case for Gold is that the past decade of disastrous underperformance is really just a base that will break out imminently.

The Bear Case is a Massive Double Top:

I think it’s important to keep an open mind.

Perma-anything is irresponsible, gold or otherwise.

Imagine letting your ego get in the way of profits. We see it all the time, and gold bugs have been one of the biggest culprits as of late.

You could have bought almost any commodity over the past year and made money, except for Gold and Silver.

Maybe that’s because they’re not commodities, and should be treated as currencies instead.

Regardless of how you classify them, it’s quite obvious that they are NOT in uptrends.

If GDX is above 31, that would be step one to digging themselves out of this hole.

What do you think?

Is there any point in owning precious metals here?

What’s the rush? Why not wait for Gold to break out above those 2011 highs.

Just think, Gold is so bad that it’s still below its 2011 highs. And it’s not even close to resolving higher. Few assets have performed this horribly.

Are things about to change?

Is price dictating your actions?

Or does your ego not let you think logically?

Let us know what you think!

What’s the trade here?

Can technical analysis complement value investing? Yes, indeed.

Fundamental practitioners are often grouped into value or growth styles of investing, while within the technical community the corollary styles are momentum vs mean reversion. In Episode #10, we speak with Canada’s foremost market expert Larry Berman, CMT, CFA who shares a compelling perspective on using technical analysis tools to position his funds toward undervalued securities.

Dogmatic believers in any style can consider this quote from the episode:

“There is no right or wrong in what we do. It’s just how you do it.

And results are results.” – Larry M. Berman, CMT, CFA

Fill the Gap covers a lot of ground this month, including:

• How fund managers can think about risk and objective outside the box,
• Details on a multi-factor diffusion model that combines technical, fundamental, and cyclical factors
• The behavioral implications of questions like “is China investable?”
• Why “Thinking in Bets” is all any practitioner can do in a market of infinite uncertainties

Larry gives concrete examples of how to use a multi-timeframe perspective to locate mean reversion opportunities, and explains how technical analysis can help investors avoid “value traps.”

Mr. Berman appears weekly on BNN’s Berman’s Call where he blends fundamentals with expert technical analysis to help Bloomberg viewers uncover opportunities in the marketplace. He is a Co-Founder of ETF Capital Management and The Independent Investor Institute — an organization dedicated to providing unbiased education to Canadian investors. With nearly twenty-five years of investment industry experience, Larry is an accomplished money manager across the equity, commodity, foreign exchange, and fixed income markets.

To better understand the concepts covered and current market commentary, we recommend reviewing the supplemental resources accompanying this episode using this link: go.staging.cmtassociation.org/ftge10

I started studying Technical Analysis back in 2000. My interest grew after the strong bull market of 1990s and the Tech bubble. At the time I was studying Economics, and the theory and real market behavior didn’t match. Something was off. I realized that the price action and the teachings of Technical Analysis made more sense to explain the irrational behavior of speculative markets.

I went through several methods in Technical Analysis, especially after enrolling for the CMT Program. I studied Elliott Wave, Indicators, Point & Figure charting, Candlesticks and Chart Patterns. It was not until 2007, when I started working for the National Bank of Abu Dhabi in UAE, that I picked up the book of Edwards & Magee Technical Analysis of Stock Trends and mastered it. I went through different methods & tools in the field and landed back on the most basic price analysis through the application of chart patterns.

Earlier I read Richard Schabacker as well. The methods of classical charting made so much sense and were practical as well, as I was managing sizable funds in the MENA region. I had to focus on so many securities that classical chart patterns came in handy. Technical Analysis of Stock Trends became a reference for me as I narrowed down the patterns I wanted to trade. With so many examples and clear classification of reversal and continuation type chart patterns, I think it is a must-read for all students of Technical Analysis. The difference between the two books is that in Richard Schabacker’s Technical Analysis of Stock Market Profits, the author discusses trading tactics around chart patterns in the second part of the book.

Given that it is one of the oldest methods of price analysis, there is still a lot of misconception about classical chart patterns and what qualifies as a H&S top, bottom or even H&S continuation. Yes, it is still widely discussed and challenged if H&S can form as a continuation pattern. Edwards & Magee is one of my favorite references when it comes to the concept of H&S continuation pattern. I come across a lot of H&S continuations and they have been profitable patterns. Edwards & Magee discussed the H&S continuation type with the example below.

The charts are so clearly drawn both on daily and weekly scale that they have been an inspiration for me to look out for such clear chart pattern developments. The example that they have provided is from 1936 on Anaconda Copper. Such old examples keep repeating in today’s markets as well. As I narrowed down the chart patterns that I’m interested in, I have come to the conclusion that the ones with clean horizontal boundaries are easier to trade as any breakout from those setups would clear the minor highs as well, leaving little resistance ahead of price action. From the H&S continuation type I try to focus on the ones that have symmetry between the left and right shoulders both on price and time. I also make sure the neckline is horizontal with several tests of the pattern boundary. The implications of an H&S continuation in an uptrend is the same as H&S bottom reversal. Price target measurement, volume pattern on shoulders and the head and the bullishness of the pattern are all the same for both the continuation and reversal type.

A recent example can be seen above on a single equity from Switzerland. I’ve featured and traded this pattern. The similarity between two patterns makes you wonder about the driving forces behind such price developments. I guess without questioning too much it is best to focus on the applicability of such patterns in today’s market and try to capture nice trend periods that emerge from such consolidations.

I keep looking for clean chart patterns and my guides are Richard Schabacker, Edwards & Magee, and Peter Brandt in the field of classical charting. If you have questions about this story or any other chart pattern developments in Global Markets, you can reach me at www.techcharts.net and at [email protected].

Kagi charting is an old charting method developed by the Japanese rice traders around 1870, to visualize the price movement and supply demand levels for rice and other commodities. They resemble old fashioned L-shaped keys and are hence named ‘Kagi’ which means ‘key’ in Japanese.

Construction

Kagi charts are plotted using vertical lines called Yang (bullish) and Yin (bearish). Kagi line (Yang or Yin) keeps moving in the direction of the market. If the market reverses by a predefined amount, a new Kagi line starts in the opposite direction. A small horizontal line is drawn to connect the two opposite lines at the turning point. These inflection points are called as ‘shoulder’ in an uptrend and ‘waist’ in a downtrend. Thus, an uptrend is a series of rising shoulders and downtrend is a series of falling waists.

Kagi charts are time independent. They are constructed using only the closing price and a predefined reversal amount. This reversal amount can be based either on a box size (percentage or number) or Average True Range (ATR). Using a fixed box size has a disadvantage that it requires adjustment for individual scrips. Box size based Kagi charts are useful for intraday or short-term trading. ATR based Kagi charts are useful in the trending market and can be used for investment purpose.

Yang and Yin lines move in the direction of the market only when the price changes by a certain amount. If the market is moving sideways for a long period of time, there will be no change in the chart since the price has not moved by the required amount. This compresses the chart, which makes it easier to view the price action over a longer period of time, at one glance. In addition to the compression, the time independent nature of the Kagi charts filters out most of the noise making them visually clean and simple. It is easier to define trends and consolidation zones on Kagi charts.

Window and Support/Resistance Zones

Kagi charts are very useful for identifying support and resistance zones. Apart from visually evident S/R zones, one way of marking potential zones is using windows. Windows are the small gaps between shoulders and waists. They are the potential support and resistance zones since the price has a history of bouncing off them. To identify potential support and resistance zones, look for a gap between shoulders and waists on the left side of the chart. Draw parallel lines extending to the right.  When the price enters these zones in the future, it is likely to consolidate in and around the zone before continuing in the direction of the trend or reversing.

The concept of double windows can be used to identify top or bottom reversal patterns.

1. Bullish reversal forms in a downtrend, when there is a gap between the last shoulder(H1) and the preceding and following waists (W1 and W2) are below the shoulder. Formation of a higher shoulder above H1 completes the pattern.
2. Bearish reversal forms in an uptrend when there is a gap between the last waist (L1) and the preceding and following shoulders (S1 and S2) are below the waist. Formation of a lower waist below L1 completes the pattern.

For a double window pattern to be valid, there can be more than two shoulders or waists, but there should be no overlap between shoulders and waists forming the pattern. In case of multiple shoulders or waists, the highest shoulder or lowest waist is used.

Double Window Reversals

Trading with Kagi Charts

Kagi charts can be used for taking intraday, swing and long-term trades as a standalone tool or in conjunction with the candlestick chart of the trading timeframe for an entry set up.

Trendlines, Patterns and Indicators with Kagi

Well defined inflection points (shoulders and waists) provide an ease of drawing traditional trendlines, channels, continuation and reversal patterns.

Fibonacci levels and indicators like RSI, MACD, Stochastics and Ichimoku work well with Kagi charts and enhance their effectiveness.

Relative Strength Ratio Charts

In Relative Strength Ratio Charts, trend and momentum of two different instruments is at play. Kagi is an effective way of plotting these ratio charts. Kagi ratio charts tend to be compressed, giving a longer-term view on the screen.

Stock/Bond Ratio ($SPY/$TLT) reached 161.8% Retracement of the January – March 2020 swing and has been consolidating since May, indicating indecision for equities and risk assets in general. A breakout of this ratio to the upside is likely to be bullish for $SPY.

Kagi Charting is an effective charting tool and can be used in multiple ways for both types of analysis trading.

Reference: “Beyond Candlesticks – New Japanese Charting Techniques Revealed” by Steve Nison

After a great second half of the year for stocks in 2020, equities and other risk-on assets were quite strong heading into 2021. However, since March, there have been massive swings of leadership among sectors as overall participation has waned quite a bit. While broad indices like the Nasdaq 100 and S&P 500 have continued to climb higher, although with somewhat sloppy trends, the Russell 2000 has been in a sideways range for nearly 6 months, which is one source of the bifurcation we have seen. Growth, Value, Small Cap, Large Cap…all have had their moments at the top of the podium in 2021, yet there have been very few instances where all have participated together, which is different from what we saw in Q3 and especially Q4 of 2020.

So, just how rough has the underperformance for the Russell 2000 and other Small Cap stocks been? From November 2020 through mid-March 2021, we saw Small Caps outperform the S&P 500 by nearly 26%. That’s quite the run of relative strength over a 5-month period.  For perspective, the last multi-month rally of outperformance we saw from this grouping of stocks was February to December 2016, where the Russell 2000 outperformed by 20%, over a 10-month timeframe. Coming back to the present, after peaking in March, the Russell 2000 had given back all of that recently created alpha by late August 2021. Unsurprisingly, knowing that the Russell is composed mostly of Value-oriented areas such as Energy and Financials, we saw Growth (and in particular Large Caps) take the lead for much of Q2 and Q3.

With all that being said, what should we be on the lookout for as we enter the final quarter of the year? What will tell us that markets are becoming healthier and are poised to continue pushing the current trend higher? For me, it lies with seeing continued participation from Value-oriented sectors and industries. We don’t necessarily need these areas to have a repeat of what we saw in Q4 2020. But the Russell 2000, as most technicians know, is going to be the index to watch for a “make or break” moment. There is no way for breadth to improve without Small Caps eventually resolving higher from this range. Can other indices keep going higher? Absolutely. There’s no reason that Large Cap and FAA(M)NG stocks can’t continue to carry the other indices higher. That’s what we have seen off and on for a few years now. But that won’t improve the actual health of the market, and that’s what we are looking for.

Going further, what would be some tailwinds that could help push the Russell 2000 through the top of this trading range? Well, we would need to see Energy and Bank stocks pick up, as they are the highest weighted areas of the index along with Biotech. Thus, we would likely need to see 1. Higher Crude prices and 2. Higher interest rates. We know that Energy is highly correlated to Oil prices and that Banks are similarly correlated to interest rates. As of the end of September, we have seen green shoots from these two areas that some coming outperformance may be in store. However, there is still much work to be done to confirm that thesis.

Three firms this month are seeking knowledgeable technical analysts with moderate amounts of experience for roles across the globe.

1) Goldilocks Premium Research in Kolkata is looking to hire passionate technical analysts who will work closely with the research team and help generate world-class content for subscribers.

Job Specifications:

Knowledge and experience (minimum 2 years) of using Technical Analysis; ability to generate trading and investment ideas using a holistic approach; focus only on big trends; possess good report writing skills. Should be able to use traditional methods along with new-age tools such as ratio charts, etc. Must be performance-oriented (no place for commentary!) and have solid ability to think and execute “out-of-the-box.” Prefer candidates who have cleared CMT Level II or higher.

Job Location: Kolkata; Requirement: Immediate. Applicants should indicate interest by sending a message to [email protected].

2) A large, TA-only RIA in the Washington DC metro area has an immediate opening for an Analyst position.

Job Specifications:

Must be familiar with TA concepts and have 5 to 7 years of experience working in the industry; must possess Series 65 license. The firm would prefer to hire local candidates but will consider remote.

Interested applicants should send their resume to [email protected] to be forwarded to the firm’s hiring arm.

3) Renaissance Macro Research, a well-established research boutique, is searching for a forward facing strategist to work alongside its founder Jeff deGraaf.

Job Specifications:

The candidate will have exceptional communication and presentation skills, meticulous level of detail, familiarity with python and coding as well as an understanding and respect for statistics and creativity.

A CMT and CFA or progress toward both qualifications is preferred, along with some client facing and presentation experience.

Interested applicants should forward a resume and CV, along with any examples of work that would support the above criteria to [email protected].

Membership

The CMT Association would like to congratulate the following members on their new positions:

• Emile Mehanna, CMT, Deputy General Manager | Head of Advisory & Asset Management at Arab Finance Corporation
• Charles Kubiak, CMT, Senior Software Crafter at 8th Light
• Brennan Basnicki, CFA, CAIA, CMT, Director and Product Specialist. Partner at Auspice Capital Advisors

CMT

As the start of the December 2021 test administration approaches, you should complete the following tasks: schedule an appointment for your exam at Prometric; confirm that your ID is current and valid; that your name matches the one on the ID you will be using for the exam; you have a printed copy of your Prometric confirmation or can easily locate it on your phone.

If you live in the US, jewelry outside of your wedding and engagement rings are prohibited; please refrain from using ornate clips, combs, barrettes, headbands, tie clips, cuff links and other hair accessories as you may be prohibited from wearing them into the testing room and asked to store them in your locker.

A calculator will be available on the computer during the exam.  Prometric will provide you with pencils and paper upon request.  If taking a remote proctored exam, you can supply your own pencil and blank paper which the proctor will request to inspect.

Last of all, complete your studies!

The CMT Association would like to congratulate the following members who received their CMT Designation in September 2021.

• Vichet Apisampinvong
• Markus Auer
• Augustine Backer
• Barik Subhankar
• Parker Brooks
• Gerald Buetow
• Vijay Chandar
• Tao Chen
• Pasan Choksi
• Owen Cupp
• Tomasz Cymer
• Franklin Davis IV
• Myron C. Fuller IV
• Jose Miguel Ortega Garcia
• Mujun Han
• Joseph Kalinowski
• Kihyun Kim
• Thomas Kim
• Davor Klasnic
• Michael Kreusch
• John Letizia II
• Marc Lichtenfeld
• Kyle Lottman
• Grantham Melancon
• Swee Meng Mok
• Leung Wai Andrew Pang
• Ran Regev
• Meena Tunlayanitigun
• Anders Bech Utoft
• Robin Liang Wang
• Ashutosh Yadav
• Junsheng Jason Ye